When Melissa Pancoast moved her financial literacy startup, The Beans, into a WeWork office in San Francisco’s Salesforce Tower last May, most of the offices around her were rented out but unoccupied.
As vaccination rates climbed and San Francisco flirted with lifting pandemic restrictions, her neighbors started trickling back in. Pancoast’s social calendar soon filled up with bike rides and coffee dates with other startup founders she met in the building.
Today, the coworking space is bustling. “Phone booths and conference rooms have become precious commodities,” Pancoast said.
She is one of 1,100 members at the 76,400-square-foot WeWork location, which has three floors with panoramic views of the San Francisco Bay. Her neighbors include startups that make business software, online recruiting tools for engineers and open-source database systems.
New members are clamoring to join. Most of the offices have waitlists, and daily desk bookings — drop-in spaces for WeWork members without dedicated office spaces — regularly run out, WeWork said. That is up from 46% occupancy across WeWork’s San Francisco locations in December 2020.
The demand for WeWork at the Salesforce Tower is indicative of how startups have begun returning to offices around the Bay Area. Instead of going to traditional offices, they are opting for flexible coworking spaces, where they can sign short leases or drop in to common space as necessary. Those coworking spaces are now bursting at the seams.
The long-awaited return to office is coinciding with a startup environment that is showing signs of faltering, after two years of free-flowing venture capital cash and soaring valuations. Tech stocks have sunk, interest rates have risen and geopolitical unrest has contributed to a general feeling of uncertainty.
In uncertain times — as startups undergo tremendous growth, with the knowledge that the funding spigot may yet turn off — short-term leases are more appealing than ever. Startups are flocking to spaces like WeWork, the national chain, as well as smaller coworking companies with more elaborate designs like the San Francisco-based Canopy and the New York-based Industrious.
But for many coworking spaces, especially during the pandemic, the short-term-lease models that appeal to startups can sometimes present risks.
In San Francisco’s Mission District, the unfortunately named coworking space Covo lost 94% of its business in the first months of the pandemic. By October 2020, it had closed.
Last May, the founders tried again. They reopened with a new name, Trellis, and a new business model. Rather than a traditional lease, they negotiated a revenue-sharing model with their landlord. Trellis would pay a minimum monthly payment much lower than that of its previous lease, and the landlord would take a cut of the revenue — sharing the potential profit and the risk.
“It used to be the landlord took no risk — all the risk is on the tenant,” said Rebecca Pan, Trellis’ co-founder. “Asking for that sort of thing, they’re like: ‘Why would I do that? I don’t need to take a risk.’ The pandemic has shifted that quite a bit.”
Other coworking spaces had been moving toward a revenue-sharing model since before the pandemic. That includes independent spaces like the Port Workspaces, with two locations in Oakland, California, and Blankspaces, with several locations in Southern California. Chains like Industrious and Common Desk, the latter of which agreed to be acquired by WeWork this year, have also adopted revenue-sharing structures.
WeWork itself, perhaps the most infamous coworking company, took a different approach: Last fall, the company went public, two years after its aborted initial public offering.
On Thursday, WeWork reported a $435 million loss in the first three months of 2022. The company said 501,000 members signed up in the first quarter, which is over 100,000 more than in the same period last year, but still lower than before the pandemic.
The Bay Area’s initial shelter-in-place order, in March 2020, meant that many WeWork members stopped coming in, the company said. The building stayed open for essential businesses, but attendance dropped and some companies consolidated their WeWork memberships.
In October 2020, Merge, a startup that makes business software for human resources, payroll and accounting, was one of the first companies to move back into a WeWork location on Montgomery Street, a few blocks from the Salesforce Tower location. At that point, the company — founded just months earlier — consisted of the two founders and an engineer, their first employee. Feeling cooped up at home, the three were eager to work together in person, and they felt comfortable adopting one another into their COVID-19 bubbles.
“We were the only ones in the office,” Gil Feig, one of the founders, said.
In February 2021, Merge moved over to Salesforce Tower, seeking a bigger office space as the company expanded. Occupancy at that location began to tick back up that month before increasing more rapidly after COVID-19 vaccine appointments started to become widely available in May 2021, WeWork said.
The Beans was part of that wave, Pancoast said. Already, there were signs that interest in coworking spaces was rebounding; she snagged the last office of her size, she said.
But in a tight tech labor market, the return-to-office plan can be a make-or-break factor for prospective employees. And not everyone is excited to get back to a cubicle.
“Some people I’ve spoken to are itching to get back in the office, but I’m getting a lot of responses saying they won’t entertain an offer without a full remote option,” said Abigail Lovegrove, a recruiter for the Collective Search, a recruitment firm, who works out of the Salesforce Tower WeWork.